All right, y'all, welcome to the Scott Horton Show.
I'm the Director of the Libertarian Institute, Editorial Director of Antiwar.com, author of the book Fool's Errand, Time to End the War in Afghanistan, and the brand new Enough Already, Time to End the War on Terrorism, and I've recorded more than 5,500 interviews since 2003, almost all on foreign policy, and all available for you at scotthorton.org.
You can sign up for the podcast feed there, and the full interview archive is also available at youtube.com slash scotthortonshow.
All right, you guys, introducing Ryan McMacken.
He is an economist and senior editor at the Ludwig von Mises Institute, that's mises.org.
They're the experts in Austrian school economics.
Welcome back to the show.
Ryan, how are you doing?
Hi, Scott.
I'm great.
Well, good.
I'm going to ask you a bunch of stuff about questions, topics I don't really understand, so my questions probably won't be very good, but I do understand the rudimentary type explanations of the boom and bust cycle and how it's generated by bank credit expansion, inflationary monetary policy.
I read Jekyll Island in high school, and Griffin, read Rothbard, so I got the basics of that.
What I want to try to get a better understanding of from you is where we are right now in this boom and bust system and cycle, and with all of the crazy monetary policy of the last year and a half, two years, and in response to the COVID lockdowns and all that.
I guess just to start, am I right that we were essentially due for a crash anyway, a great recession type comeuppance?
It had been 10, 12 years since the last one, and then essentially the government beat the economy to it.
It was like Volcker clamping down with high interest rates in the late 70s and early 80s, but instead it was the government enforced lockdowns across the country, which just crashed the economy and had all kinds of deflationary pressures, I guess that means however many thousands or millions of loans going bad and all that kind of thing.
That kind of caused the crash.
That means in parallel, right now where we are is somewhere approximately in the autumn of 2009, where they're stimulating and inflating and doing everything they can to try to not let the recession be as bad as it could have been.
That's sort of kind of my rudimentary understanding of what's going on.
So can we start with how wrong that is before we move on?
Well I think that fits into the generally correct narrative.
I think one thing to keep in mind is that we never really left 2009 behind.
We're still living with the consequences of the 2008 financial crisis, the 2009 bailouts and the adoption of new types of monetary policy, and so there's been just immense amounts of monetary inflation that have taken place through 2009.
As a number of good critics of the Fed have noted, not just in my immediate circles, but take for example a good new book called Engine of Inequality by an analyst named Karen Petru.
She's got a new book coming out that shows that the last decade or so has been a period of very slow growth, and especially bad for people who are of moderate and low income.
So what we did get over that period from 2009 to 2019 or so was a period of very slow growth.
It was great if you were already rich and had a ton of stocks, because a lot of the monetary inflation then really fueled increases in equity prices and real estate prices, and that's all great if you're rich.
But if you're a first-time homebuyer, if you're someone who depends on a pension, these are problems for you, because there's low returns on savings for regular people because of the ultra-low interest rate policy.
Also between the coasts, I mean in big cities where rich people live, huge increases in home price gains, but in the middle of the country you couldn't build wealth there nearly as easily with real estate, and you couldn't invest a lot in the stock market either, because those prices were way, way up, all due to inflationary Fed policy.
So a lot of people were falling behind during that decade.
But they were constantly saying during that time, oh look, look at these growth rates, the economy's steaming ahead, and Trump of course played that up a lot, trying to take credit for basically what inflation was causing in terms of another boom in the stock market.
But as those numbers ended up, and as you say, as we were approaching more than 10 years after the previous crisis and so on, we did start to see more and more signs of there being some real problems with that 10-year-old expansion, which as weak as it was.
And I think probably the real, the place that our eyebrows really started to shoot up was in late 2009 when you had a repo problem, or a crisis basically, in the repo markets where interest rates just started shooting up.
And what that really means for people who aren't terribly interested in the repo markets is that there was a liquidity problem.
There was people owed, people started to be real concerned about whether they were going to get enough money to cover their obligations.
And you would think, well that shouldn't be a problem at all in an economy where they've been just pouring money into the economy through Fed asset purchases and all of that, and through deficit spending and just money creation in general taking place.
Why should there be any liquidity problem?
Well, that points towards some problems with zombie companies, with people losing confidence in their ability to cash flow, and really showing that maybe that things weren't going as smoothly as they thought they should be in 2019.
So there was good reason to believe that the U.S. was headed toward a significant recession anyway after the end of 2019, and we'd already seen at that point Europe start to dip into recessionary territory a little bit, and their growth was very, very slow.
But as you say, what happened was is that COVID happened and that completely changed the narrative then.
Then the central bank and its supporters were able to claim, oh, everything's great.
All that happened was COVID, and thank goodness we had the Fed to step in and save us all from that.
Yeah.
And, you know, it's funny because I remember a year and a half ago saying, well, you know, lockdown to keep the hospitals from overflowing for two weeks, that makes sense, but after or not that I support government doing anything to anyone, but just I thought that they'll get away with that, but they won't get away with more than that because big business is not just going to allow the government to shut down the whole economy, you know, for any longer than that.
But what I wasn't thinking of, which is stupid, was as long as the bailout is there, big business is not going to care.
And if they crash the economy like what happened in 08, but they actually crash it as a verb, then they're going to react the same way.
They're going to bail out everybody who matters and keep them whole at the expense of the rest of us.
And so big business will agree to that.
And apparently they did because they kept those lockdowns.
I mean, depending on what state you're in, but they kept severe restrictions for months and months all over the country.
Yeah, I don't think it would have been possible unless we had been in a position to have millions of people, hundreds of millions, sitting at home and buying things online.
Because of course, if that hadn't existed, and say it had been 20 years earlier, yes, the suppliers, retailers would have thrown a fit, including very large ones like Walmart and so on, and that would have ended.
But that didn't happen.
Not only could these companies be confident that, especially Amazon, for example, that they could continue to sell things online and so on, and then of course, places like Home Depot remained open because they were hardware stores and deemed necessary.
But they also knew that they'd be able to get loans real cheaply if necessary.
And that, of course, is the back-to-the-zombie-company issue.
In the short term, for some of these companies in the long run, they've been going for years and years just borrowing more money cheaply in order to keep the cash flow going so that they don't actually enter bankruptcy.
If interest rates went up at all and they had to borrow to keep things going at slightly higher interest rates, they'd be in deep, deep trouble.
But with interest rates basically at zero, in many cases, especially for the bigger companies which can borrow more cheaply, they're able to just kind of keep kicking that can down the road.
And I think that's what a lot of these larger companies were counting on, is like, look, if we get into trouble, we can count on, of course, cheap credit that can patch things over for a while.
And then on top of that, if we really get into trouble, and especially if we're in the financial sector, we can go to the central bank and the Congress and they'll bail us out like they did with AIG.
And so things will be fine.
We can count on the federal government and the central bank to have our back and patch things over.
Now, of course, if you're a small company, if you're a small businessman, you don't have any of those benefits.
You can borrow at much higher interest rates because you're considered more risky.
And so a lot of those companies then were going out of business.
They suffered greatly.
So middle-income, lower-income business owners, they're the ones who suffered the most and that really helped to move the economy even more towards sort of this corporateocracy that had already been forming and accelerating in the wake of 2009.
All right, now, you're one of the few people who I see regularly write all about M2 and M3 and M this and that and whatever measures of the money supply and what that all means.
And I was wondering if you can either verify or correct something that sounds like it must be a myth that something like two thirds or three quarters or something of all the U.S. dollars ever created were created in the last year.
This is the biggest increase that anyone could have ever imagined to try to fill in the hole that they dug with the lockdowns and the artificial recession, again, that we were due anyway, but still that they forced last year.
Is that really right?
Well, I would have to see exactly how they're phrasing that, because that's the sort of thing that depends a lot on what exactly you're comparing.
But I did just put an article up today on that, which mentions M2, and it's up 35 percent just over the last year, which is a huge increase.
And we also measure money supply inflation using a method developed by Joe Salerno and Murray Rothbard years ago, which is a little bit more of a sensitive measure.
And both M2 and that measure, the Rothbard-Salerno measure, these were up at crazy growth rates.
We're talking 20, 25 percent month after month during 2020 and the first half of 2021.
So these were just enormous increases in money supply, like off the charts.
So yeah, I mean, if what people are trying to express is that money creation was off the charts for the last 18 months, they are correct, but there's been a whole lot of money creation, of course, over the century, between 1913 and 2013.
But the supermajority of all dollars ever created, that doesn't sound right to you, does it?
Or maybe?
That doesn't sound likely to me.
I mean, if you do look at the sheer volume of dollars created, it is far greater than, yes, what were created like in the first, say, 90 years of the Fed.
Because you started to see huge increases occurring after 2009.
And you can see that a lot in the Fed's balance sheet, because the Fed always maintained a balance sheet where they created money to buy bonds.
They did that, but the total was generally around half a trillion, right, $500 billion.
And it wasn't a big factor at all.
And it's still only some, it's still only like, say, a fifth of, say, purchases of government bonds and that sort of thing.
But it used to be just a tiny percentage, really, of overall.
They were doing things around the margins.
But then in 2008, 2009, the Fed's balance sheet increased from half a trillion up to over $4 trillion in the years following that.
And then after 2009, during that repo crisis I mentioned, the Fed started to increase its balance sheet again.
And so that's going up from $4 trillion to $8 trillion.
And we're talking in an economy that's, say, $19 trillion GDP.
So these are enormous increases that are taking place.
And we're definitely unprecedented.
And when the Fed, we should just be clear, when the Fed adds to its balance sheet, it's generally just creating new money to do that.
So that money then goes into equity markets, and it goes into the federal government when they're monetizing the debt, which just basically means that rather than just temporarily buying up some government debt, they're basically just doing it forever.
And so what that means is that that government debt is forever turned into dollars because the Fed bought it and put it in the Fed somewhere and then put money in return for that government debt.
So now it's just this money sloshing around in the economy.
And so we're talking about trillions and trillions of dollars that didn't exist prior to 2008.
And this has a real effect then on the value of the dollar, on expectations, on prices of stocks.
And it's not a normal economy.
It is fundamentally different from what occurred prior to 2008.
So yeah, when people do make statements that seem outlandish, I would say that the economy is in an outlandish situation that would have been unrecognizable certainly prior to 2008, but arguably even prior to 2019.
All right.
Sorry.
Hang on a second.
Important business here.
I was telling my friend, man, you drink too much.
You know it's causing all these other problems.
Just smoke weed instead.
It's way better for you.
And now you can get good smoke in the mail, and it's totally legal just about everywhere in America.
It turns out there's a cannabinoid isomer called Delta-8, which is perfectly legal and still gives you that nice little old reverse headache kind of feeling you're used to getting from your guy.
Check it out at TheHempSpot.com, but spell the T-H-C, TheHempSpot.com.
Now double check into the legality in your state, but you should be good.
TheHempSpot.com is shipping everywhere in America.
And during their grand opening through July, use coupon code Horton and get 30% off.
And a 10% commission will be paid to The Scott Horton Show for every order using that coupon code.
And free shipping on any order over $90.
Get your Delta-8 THC cannabis at TheHempSpot.com, but write THC for thee.
Hey guys, Scott Horton here from Mike Swanson's great book, The War State.
It's about the rise of the military-industrial complex and the power elite after World War II, during the administrations of Harry Truman, Dwight Eisenhower, and Jack Kennedy.
It's a very enlightening take on this definitive era on America's road to world empire.
The War State by Mike Swanson.
Find it in the right-hand margin at ScottHorton.org.
Okay, so another parallel kind of, or lack of one, if we can make it to the 2008-2009, you know, crash and then stimulus and all of that is, you know, it's kind of a controversy that a lot of Austrian school economists, including our friend Bob Murphy, said that, boy, it looks like we're going to have real bad price inflation as a result of all this monetary inflation.
But instead, it seems like it was mostly, it was a repeat of what happened in the Bush years before the crash, which was inflation in certain sectors like stocks and housing, but not widespread price inflation.
And then the explanation was that the Fed, you know, Bernanke maybe had a little Ron Paul on his shoulder yelling at him about inflation and he was afraid.
And so what he did was he came up with this scheme where he would create all this money enough to make the banks whole and prevent them from collapsing.
And then whatever other extra money that he gave them by buying up their bad debt, he paid them to keep that money at the Fed.
And whatever rate that they could get by loaning it out into circulation, he paid them a point better to not do that and to take that welfare for their own corporation, but not to loan it out into circulation.
And that helped to prevent more widespread price inflation.
So is it the case then that this time they are not doing that?
And every bit of this money that they're creating and all the bad debt that they're buying from the banks and whatever, that they are loaning all of that out?
And that's what's causing, I mean, especially a huge spike in housing prices, you know, all across the country and especially in certain places.
But also widespread, seemingly widespread price inflation, you know, in groceries and every other thing, energy and whatever, right?
Well, it is different now compared to 2009.
But it's not necessarily because there's more loan activity.
It's just because the Fed or the federal bailouts are different and that there's money going straight into the real economy and not into the banking system.
So to go back to what you were saying about Bernanke, so it's true in the early days of Bernanke and then what happened in 2008, 2009, Bernanke actually wasn't, didn't start out as a big gung-ho inflationist type guy.
But once the financial crisis happened, he changed his mind on that.
But you're right.
Bob Murphy, he didn't know that interest on reserves was going to be such a heavily used tool here.
And so, yes, you're right.
They put, they pumped a lot of liquidity into the financial sector, into banks specifically, and then they use interest on reserves to control the flow of that money so that it didn't just go into households.
And that's, of course, been a big complaint all along is that a lot of this new money was created to shore up the financial sector, but not for regular people.
So that, it did happen, I think, as the Fed planned it.
They made sure that none of these banks collapsed by just pouring money into them so that they always had enough money to deal with any financial problems they might have had internally.
But at the same time, banks didn't have to lend that money out to keep up with inflation or to make money or to make a return on that money because the Fed was paying interest on reserves, on those banks' reserves.
And they didn't even have to pay above market rate, they could just pay market rate.
And because that was then totally risk-free then, whereas if you loaned it out to a business or something that at slightly above what the interest on reserves were, you were taking on greater risk then.
So there was plenty of good motivation, just park your money then and collect the interest on reserves on that.
So yeah, that was a big factor then in preventing goods price inflation, and to some extent services price inflation.
But asset price inflation was clearly there, right?
And this is pointed out by Brendan Brown in his book Against 2% Inflation, is there's a fundamental difference that isn't discussed enough between asset price inflation and goods and price inflation.
When you have the sort of money regime that occurred after 2009, you still saw the asset price inflation.
You saw it in stocks, you saw it in real estate especially.
And that was identifiable, that's real.
And it's just that those don't make it much into the CPI inflation, so they don't show up there.
But when you get into the most recent crisis, so you had a whole decade there of asset price inflation, but pretty restrained goods and service price inflation.
And it should be noted that a big reason for that also was that they were, I guess you would say deflationary, but non-inflationary is maybe a better term, in the sense of the economy was becoming productive.
So there were things in the natural economy, in the unmanipulated economy, that were keeping goods inflation low because of globalization, because of more productive workers and so on.
And so the natural rhythm of inflation in many ways has been downward.
So things would have become cheaper in a real economy that wasn't heavily manipulated.
And so the fact that the Fed was pouring money into the economy through the financial sector didn't really get a chance to show up nearly as much in goods prices as inflation because things were in fact becoming cheaper in the real world.
They were cheaper to produce.
So that's something we have to, we don't, we shouldn't necessarily always compare in price inflation to zero.
We might compare it to what it might have been because it might have been negative if the market had been allowed to occur.
So that's another reason that goods price inflation was muted during that 10-year period.
But then what happened after the crisis in 2020, they embraced a different type of bailout.
And that was, well, we're going to ship a bunch of people money in the form of just emergency bailout funds, right, at the household level.
And we're going to put out a bunch of cheap loans to businesses and we're going to just massively increase unemployment insurance.
So people are all going to get all of these payments at home.
And so that money then isn't locked up through interest on reserves the way that that money had been a decade earlier.
So then that money did flow.
So how much is that?
And that's where the real price inflation is coming from, is those direct payments, the stimulus checks that everybody has.
Yeah, that's a big part of that is that that money is not, people aren't just locking that up because they can collect interest on reserves on that.
Ordinary people, they don't have access to that.
So they're just paying.
They're just paying it into the economy.
Now, early on, they were saving a lot of it.
As we saw, savings rates skyrocketed.
How much money are we talking about with the different stimulus checks to the households?
It's really hard to calculate.
I mean, all we can see, we can see, is that the government was basically spending double what it had been spending before.
So that liquidity that goes into the banks, a lot of that comes from the Fed.
And so that's separate from the liquidity, if you want to call it that, the money that went into households.
So that was fiscal policy, right?
Because that was something done through Congress.
And so federal spending increased from $3.5 trillion to $6 trillion in the 2020 fiscal year ending in September of that year.
So we're looking at trillions of dollars that were being additionally spent, and that's a lot.
What form does that take?
Well, a lot of it was, of course, the extra unemployment assurance.
A lot of it was these emergency funds.
A lot of it was just more spending in general on whatever you want to name, whether it's government contracts, defense.
All of that stuff then is going directly to people, and they're then spending that money.
And so that's totally separate from the money that might have been locked up in the financial sector.
So you are looking at trillions of dollars in new additional spending that is going into the economy and being spent.
So that's going to have a real effect then, because that's separate from these funds that are just being used to shore up financial institutions.
But then, if all this is so unprecedented, I guess it makes the answer to this question harder.
And I know Austrians always say, I'm not saying when, I'm just saying definitely.
But where in the bubble are we now?
Because I remember essentially parroting Ron Paul in the year 2001 saying, it's a housing bubble.
You should wait until the crash and buy a house then.
But then the crash didn't come for another eight years.
So anybody who listened to me parroting Ron at the turn of the century probably got hosed.
And I was right.
It's way too soon.
So obviously, probably anyone listening to this, housing prices are skyrocketing in their town.
Should they buy now before it gets way, way, way worse?
Or should they hold their horses because this particular bubble and the way that they've done it and set it up means that the crash is going to come sooner than later?
Or what do you think about that?
Well, of course, it's always impossible to predict.
And Brendan Brown is real good on this in his book as well and just in his writings at Mises.org.
Because he was early on one of the guys saying, this was a few years ago, we're talking 2016, saying, hang on.
We still got a ways to go in this cycle.
Because of course, people from any time after 2012 were predicting collapses in equity prices and all sorts of things.
But as late as 2016, 2017, even 2018, Brown was saying, well, you know, there's still a long way to go in asset price inflation.
And we haven't seen runaway goods price inflation yet.
And this is him talking before 2020.
And so we could still get years out of this current cycle.
And he would point often to Japan and point out that unless you hit a crisis where there's an immense amount of goods price inflation, there's really no motivation for the Fed to scale things back.
So the Fed could just keep inflating again and again, year after year.
And that'll fuel more and more asset price inflation.
But due to there being a natural downward rhythm in prices overall for goods, that could keep price inflation muted.
If savings rate goes up, that could keep goods price inflation down.
And you could just kind of keep that cycle going for quite a long time.
And you could have something that happens in Japan then, where you've got just ongoing low levels of monetary inflation and just a real lackluster economy.
It doesn't have to end- The 70s, right?
That stagflation where they keep inflating, but it doesn't stimulate anything.
Well, and you could even have where there's not necessarily the stagnation part of the stagflation, where you could still have slow growth, even that's going on.
The question is, in the larger economy, is it enough growth where real wages for moderate income people are still going up?
And that's the question, right?
Where people are working longer hours, they're not able to save as much.
And over the last decade, we have seen that as a reality for a lot of people.
And again, if you're on the upper end of the income scale, you're doing fine.
And so you could stave off disaster even for a number of years.
Just sort of this slow burn on half a percent GDP growth, and home prices just continuing upward, and lots of strategies being employed.
And so you just don't necessarily have that big, obvious, dramatic crash.
Now, you could have that, especially if price inflation starts to run away with things.
Because then, politically, the Fed starts to come under a lot of pressure to do something about price inflation.
And then, even if it just starts to scale back its monetary injections a little bit, then you end up with a real crash.
You don't have to do some sort of thing where you're slicing out the money supply, and you're scaling back massive amounts of deficit spending, and doing all that, some sort of massive austerity project.
You don't need that.
You can really start to slow the growth in the money supply, and that could cause a real significant crisis.
Whether that's going to happen yet, I don't know whether they're going to do that.
Of course, the Fed is always talking about, oh, well, now we're going to soon start tapering.
We're going to start really lessening our asset purchases, and maybe even let interest rates go up a little bit.
But I'll believe it when I see it.
I mean, they're saying they're going to start doing that in November.
But all they need is just a little bit of data showing that the economy is worsening, and they'll cancel that.
They'll chicken out.
But yeah, I think you would need to see a real significant policy on the Fed's part of just allowing money supply growth to really start to slow, and then you could have a real crisis.
But other than that, you could still just keep these asset prices going up for quite some time before a real crisis sets in.
So I wouldn't assume something is necessarily right around the corner unless price inflation starts to accelerate a little bit more.
But I mean, if we're going to talk about, like, should you get out of the markets or something like that, it totally depends on who you are, right?
I feel bad for old people who are near retirement, because if things do turn south and stock prices collapse, say 10 or 20 percent, that's going to be terrible for their portfolios, which they're going to need to live on.
But if you're my age and you're, like, 40 and you still got to work for 30 more years, if the stock market crashes, that's not going to be a problem for me in terms of making a living wage, because I won't depend on that fixed income through stock markets.
But some people could be in real big trouble.
Well, man, I'm sorry.
How much time do you have?
I know we're already over and I have all these questions still.
Oh, well, you can keep going.
Well, it's 1130 on my time.
Great.
So I like this paragraph here in your 2 percent inflation standard article that you wrote here at Mises.org, at Mises Wire.
You talk about the famine and interest income, which I guess means regular people can't just have a savings account.
Not just investor type people, but everybody has to try to figure out how to become an investor in something or another so that they're not just losing ground to all this price inflation all the time.
And then that leads to more, at least, quote unquote, price inflation in certain sectors where, for example, people are more and more gambling on housing and flipping houses and that kind of deal and buying up, you know, companies coming in and buying up many tracts.
And that seems to hurt people who don't own homes, people who either want to buy one or people who are renting, you know, they end up paying the price on all of that.
Yeah, that's that's right.
The the yield famine, as we might call it, the reason it has happened is that the Fed wants very low interest rates and not just put the Fed, but the Congress, because you got to keep this in the perspective of the regime.
So all states, they want to be able to borrow a lot and borrow it cheaply.
And the U.S. state is no different.
It wants to be able to engage in trillions of dollars deficit spending.
That's how it goes from three and a half trillion to six trillion overnight in spending.
It wants to issue a whole lot of debt.
And so the Fed helps then in making sure that interest rates don't go up, because if you can think about it, if you're pouring government bonds into the economy, how do you convince people to buy this thing where there's more and more of it?
It should be getting cheaper because there's just so much of it now.
The supply is real high.
Right.
And they want to sell it.
They want to sell this debt to investors.
So here's a ton of it here.
We just printed up or we just created another trillion in debt here by an investor.
And they're like, well, I mean, there's a ton of it here.
You're going to have to give me a higher interest rate.
And so they don't want to have to do that.
They know, well, a ton of debt will lead to a rising interest rate.
And so the Fed then steps in and buys up a lot of it and buys a very high percentage, 20, 30, 40 percent in many cases of that new debt that's being issued, even higher than that.
I think it's over 50 percent at one point.
And that then keeps the interest rate low because then the federal government can put out all of this debt and they don't have to worry about having to cater to normal investors by saying, yeah, OK, fine, buy it up.
We'll offer you a higher interest rate to entice you.
And so what that translates then into is the Fed's need to keep interest rates low and for political reasons.
And that then affects the larger economy in many cases.
So they're looking around and they're thinking, well, how do I make money on my investment?
So you're an investor, you're a bank, you're any sort of financial institution and you need to make money by investing your money in many cases.
And that's really hard to do now when interest rate compression is just so far downward.
And of course, an ordinary saver, they can't make hardly any money right on a savings account.
You're losing money because your interest in a savings account or a CD, unless you've got a hundred thousand dollars to put into a CD, you're just not keeping up.
And so you've got to look around.
You're looking for places to put your money.
Now, if you're a more sophisticated investor, you know you've got to come up with riskier, more creative ways to make money.
So you're starting into the carry trades.
You're looking into high yield investments, which just means higher risk.
And so people are pursuing higher and higher risk investments because that's the only thing that brings an actual return.
Because in a world of low interest rates, you just simply can't make money unless you pursue the high risk stuff.
And that has a couple of outcomes.
As you say, it increases asset price inflation because people are still putting money into real estate and stocks because those safer investments are no longer good for making money.
So there's a lot more speculation then.
There's a lot more froth in those markets.
And then the other side of it, though, is that it just creates a more fragile and riskier economy.
We're pouring money into investments that are riskier in many cases.
And so then you end up with highly leveraged financial institutions and investors that have a lot of money in riskier investments.
And if those go belly up and if they start to run into trouble, as they did maybe during the repo crisis days, then suddenly you can lose a lot of money.
And so that's how then you get like a real crash and a real financial crisis.
And so by creating this yield famine, you're encouraging people to take more and more risk.
And that can be a problem.
But, of course, the reason they're willing to take that risk a lot of time is they assume that they'll get bailed out, that especially if you're a firm that's considered too big to fail, you're one of these huge financial institutions, just take on a bunch more risk and the government or the central bank will bail us out if we get into deep, deep trouble.
And that's just that's not a recipe for a sound economy.
Hmm.
Hey, I'll check out our great stuff at Libertarian Institute dot org slash books.
First of all, we've published no quarter the ravings of William Norman Grigg, our Institute's late and great co-founder.
He was the very best one of us, our whole movement, I mean.
And no quarter will leave his mark on you, no question.
Which brings us to the works of our other co-founder, the legendary libertarian thinker and writer Sheldon Richman.
We've published two collections of his great essays, Coming to Palestine and What Social Animals Owe to Each Other.
Both are instant classics.
I'm proud to say that Coming to Palestine is surely the definitive libertarian take on Israel's occupation of the Palestinians.
And Social Animals certainly ranks with the very best writings on libertarian ethics, economics and everything else.
You'll absolutely love it.
Then there's me.
I've written two books, Fool's Errand, Time to End the War in Afghanistan, and Enough Already, Time to End the War on Terrorism.
And I've also published a collection of the transcripts of all of my interviews of the heroic Dr.
Ron Paul, 29 of them, plus a speech by me about how much I love the guy.
It's called The Great Ron Paul.
You can find all of these at Libertarian Institute dot org slash books.
You know, I learned in junior college from, you know, socialist leaning Democrat types, I guess that, no, see, inflation is great because inflation is how regular schmuck can borrow in dollars and pay back in dimes.
And so, you know, you buy a house for $100,000 in 1972 or something like that, get it paid off within a reasonable time frame, even if you end up paying double after all the interest payments over the years and all of that.
End up sitting on a house worth $450,000 by the time you're ready to retire or, you know, pass it on to whoever inherits it from you and whatever.
Build wealth this way.
And it's the banks who are the ones who are getting screwed, even though, of course, they're creating the money out of nothing when they loan it to you in the first place.
But it seems like the way you explain it, the very wealthy, they do just fine.
The asset owning class, I think this might have been the phrase you use there.
And middle class people who already bought a house, maybe they bought it after a crash, got a good discount on one.
And then essentially, you know, nobody says to, you know, middle class, suburban homeowners that you're all on welfare, just like poor black single mothers.
Watch us, you know, artificially inflate the value of your home and then you can refinance it and take all that cash and buy yourself a new marble countertop or whatever it is, when really you didn't build that.
Right.
It is kind of welfare for them.
But here's the point I'm really getting to is sounds like this is really at the expense of the poor and the working class, people who might be trying to become middle class, you know, the people who work hardest for living, labor theory of value and all that doesn't hold up so much.
They don't make as much and they're the ones whose rent goes up all the time.
They're the ones whose wages are not only they're the last ones to get a cost of living increase after the executive vice presidents at their company and whatever.
But then they take the blame.
And we see this all the time.
I'll never forget Alan Greenspan testifying back in the 1990s.
Yeah, boy, I tell you what, if there's any more upward pressure on wages that could trigger inflation, that could cause inflation to happen.
And that's how they always do it.
They say, in fact, that's why I think they're in it.
Right.
That that's kind of why there's this so-called labor labor shortage right now is that companies are unwilling to raise wages as high as they need to be to get people in there, because then they'd have to raise the cost, the price of everything that they sell to such a degree that it would just shock all their customers and in all their business.
Same reason they shrink the candy bar instead of just raising the price for the thing is they got to try to figure out how to ameliorate all the price inflation going on.
So they end up hiring a computer kiosk to be the checkout person or where all of this stuff seems like it's it hurts the people who are, as they say, on the lowest rungs of the economic ladder the most.
Well, yeah, to address that part of it first, right, that comes back to that old myth that companies just pass on to the customers whatever the increase in their goods is.
So we increase a tax on a business.
Well, they'll just pass that on to the consumer.
And people both left and right say this.
A lot of right wingers say this a lot of the time is, well, if you raise taxes on this company, I know you're trying to screw over this company, but they're just going to pass on all those additional expenses to the consumer.
That's not true.
They can pass on some of it.
But if they could just raise their prices, they would have raised them already.
Right.
So why wait until a new tax is imposed to increase the prices you charge your consumers?
So they because they can't.
Because if you raise your prices, people will purchase less or they'll they'll do some substitute ride your hamburger.
Well, let's just raise price and ground beef.
Well, then they'll just switch to something that doesn't use ground beef, pork or say sausages or whatever.
Right.
Something totally different.
And so, yeah, you can't just raise prices.
So they're constrained by their consumers as to how much they can pay their employers.
And you might say, oh, well, the employers or the employees, rather the employees are consumers also.
So by giving your employees a raise, they'll be able to pay the additional prices.
But then, of course, so their real wage shouldn't go up.
If you give your employees a raise, but now you have to charge higher prices at the retail end.
OK, great.
Now they're just now the cost of living just went up.
So there was no net benefit of any kind.
So these things all seem to make sense if you chop them up into pieces and don't think them through.
And that's kind of the problem, too, with the left version of why inflation is good.
And, boy, I heard this many times from very intelligent professors and instructors, which was inflation benefits the the lower classes because they pay back their debts in depreciating dollars.
And they just say it like that's all there is to it.
And so obviously inflation is good because poor people take out loans and rich people make loans.
And that's that's their version of the economy.
But the economy is not actually like that.
Tons of rich people take out loans and take out more loans than lower income people.
And it's much easier to take out loans at very low inflation or very low interest rates when you already have assets.
Just some of our listeners who have assets will know from experience that if you want like a home equity line of credit and so on, banks will just throw money at you because you've got all this collateral.
And they're like, well, here, take a six figure loan and just pay it back at your leisure.
And if you don't pay it back, we'll we'll take some of your collateral.
So it's so much easier to get loans at low interest rates when you're richer, you have assets.
But what happens for lower income people in that situation is we've already got interest rates at rock bottom levels, which means more inflation.
And there's all this economic activity going on with cheap dollars for the rich and the asset owning class.
But in under those circumstances, fewer loans are actually made to lower income who are defined as higher risk people.
And because those people, why why make loans to those people when you can collect interest on reserves, when you can make loans to much safer, large financial institutions, and you might end up making money to some low income person that might not be able to pay it back.
And that's a big, giant pain.
And so this issue of inflation and interest rates are all tied up together.
And what they combine is into an economy where it's not at all as simple as this idea that, well, if the dollars are depreciating, well, then poor people are just paying back their loans in cheaper dollars.
And so they benefit and everything's fine.
The situation is far more complex than that and in many ways is a disadvantage for the lower income people.
And I think as Petru's work shows, the empirical evidence points to ultra low interest rates and high inflation actually being bad for lower income people.
And here's another issue, too, is that when the dollar is strong, lower income people can buy more imports.
So you've got a strong dollar.
You've got a lot of imports coming in from overseas.
You're able to buy a lot more of that.
What producers want is a weaker dollar so that they can export more.
But what that means is a higher cost for consumers in buying imports.
So that's not necessarily good for lower income people at all.
And so this whole just kind of, you know, we say with a smirk and a shrug, well, obviously inflation is better for lower income people because it screws over those people making all the loans.
But this idea that the loans only come from rich people and the loans are only taken out by poor people has nothing to do with reality.
Yeah.
And now what about that part about the dislocations in the labor markets right now where people won't go get a job at these prices?
If you're going to pay me 20 bucks or whatever it is, because have you seen what it costs to get a, you know, shopping cart full of groceries lately?
But, you know, people and rents are going up like crazy, of course.
And so, um, it seems like it's pretty hard for, you know, you talked about the, the difficulty that businesses have in passing their costs on, how they can only do that so much, but where does that leave people who, I mean, cause you see all over the place that, Hey, sorry, we're short staffed today because they can't raise their wages fast enough for the demand from the hourly workers.
Yeah.
Well, on that, I, I admit to being mystified that there are so many people who can just afford to not take a job.
Now, of course, what the Marxist told us for so many decades was that workers are always just price takers because everyone's living on the edge of abject poverty all the time that nobody, that nobody can negotiate with an employer, that they have to accept whatever an employer is willing to give them immediately and start work immediately.
So they don't starve to death.
Uh, but now a lot of those same people are telling us that, Hey, capitalists raise your wages because people just aren't going to work for you otherwise.
And I don't know how they're making a living.
So, uh, there is something of a mystery here in that we know for a fact there are 5 million people.
Well, we don't know for a fact, but we know from the government official numbers, uh, which one could take as fact or not that there are 5 million fewer workers now than was the case, uh, before the COVID crisis.
So where are all those workers and they don't need income anymore.
I, I, I don't know what they're doing.
Did they all move into, did they all find cheaper rent?
Are they doubling up with other people?
Uh, I'm really not sure.
Uh, but clearly, yes, the cost of living is clearly going up.
But of course, if the old Marxist story was true and, and workers were all price takers, they would just have to take whatever they were willing to get and just hope they didn't star.
I mean, maybe they could move into a quarter cardboard box and still afford some food with, if they were able to cut rents out completely.
Uh, but we don't see that happening.
And so I, it is a bit of a mystery.
And, and what I read in the press is it just strikes me as, as so much speculation.
As to where are these workers and why aren't they working?
And, uh, apparently you've got, it seems enough people out there who don't have to work and don't see working as worth it until they can meet a certain minimum price, uh, on their, their labor and okay, fine, that would explain it, but it's hard for me to imagine that that, that describes all 5 million people that aren't working, but maybe it is.
And I'm just, I just don't get it.
So, uh, I'm going to have to cut back to you later once we have more data.
That's the, that's the wall street journals number now, huh?
Is that we got 5 million people out of work and we got X million open jobs, but they won't match up.
Well, we just know from, uh, the, the federal numbers that if we look at total non-farm employment from February, 2020, it was 5 million higher than total non-farm employment now.
So we've got all those numbers.
And then you look at, yeah, the total number of job openings.
Why aren't they being filled?
And I, I apparently, uh, it's a safe bet that the reason varies from person to person.
Uh, but you would think that with inflation going up, people would have to rush back and start making some money again, but it could be that they're still making, making, they're still able to get by on the money they did receive, uh, in unemployment insurance during, during that period of 2020, early 2021.
Because it was just, uh, in recent months that we finally started to see the savings rate really collapse, uh, from its high, high rate.
So people are spending down those savings.
Um, but that's a fairly recent phenomenon.
Maybe the situation will change in, uh, November and December, but last jobs Friday, when we looked at those numbers in terms of new hires and so on, the number was much lower than what people assumed was going to be in terms of the total employment number going up.
It was a big miss.
So I, there's there, you're right.
They're not rushing back into the job market.
They're not filling these open positions, but it's just not altogether clear to me as to why that is.
It's important also to consider the effects of financialization too.
And remember that the way the economy has been structured, uh, since the eighties increasingly and really accelerated since 2009 is, uh, find is that the resources, whether through a deficit spending or through fed asset purchases, it goes primarily into the financial sector.
So wages in the financial sector, uh, are doing very, very well.
And if you're invested in the financial sector, you're doing relatively well.
But what that does is it sucks money out of the non-financial sectors and the so-called productive sectors.
Not that the financial sector isn't productive.
I mean, they provide a real service, but they don't make things.
And so people who work to make things there, they don't get as much access to money and loans as they would in a non-financialized economy like ours, which did exist in previous decades.
And so then wages would increase, I think, for workers who are working in manufacturing production and so on much more so under those cases where more money was available to invest in machine tools and productivity for, uh, the productive sectors of the economy.
But that's, that's not happening because so much money is being sucked up into the financial sector.
And that's not just due to the central bank.
There's other issues at play there, but, uh, that's, that's a big reason.
And so, yeah.
So if you're not in that sector and especially if you're down, um, not at a level where you can put any money into the sector and take advantage of that, uh, you're seeing not very many dividends being paid to you through this new modern economy.
Right.
All right.
Well, man, I can't tell you how much I appreciate your time on the show.
Thanks a lot.
Thanks guys.
A pleasure being with you.
Aren't you guys?
That is Ryan McMacken.
He is an economist and senior editor at the Mises Institute.
That's mises.org.
His second to latest, I think I missed the latest is why the feds 2% inflation standard is so bad.
The Scott Horton show anti-war radio can be heard on KPFK 90.7 FM in LA APS radio.com antiwar.com scotthorton.org and libertarianinstitute.org.
